S&P Global Platts Analytics Oil Spotlight
Hurricane Florence – A Wild Card for Product Pricing
The expected storm track for Hurricane Florence has shifted over the last 24 hours to a somewhat more coastal and southerly track. While this will exacerbate flooding along the coast, it may reduce the risk for the Colonial pipeline which is located roughly 170 miles inland. Colonial released a statement to shippers today reiterating its plan to maintain operations at full rates through the storm. Consequently, the risk of severe spikes in gasoline and distillate prices in the Northeast (and weakness along the Gulf Coast) seem less likely today. But this is an inherently unpredictable event with respect to operations and the outcome will not be known until this weekend after the markets close. Stay tuned!
But what about if there is a shorter, more limited outage? History offers an example of how markets might react. In 2016, there were two outages on Colonial’s 1.4 MMB/D gasoline-only Line 1 which caused short term spiking of USEC gasoline prices. On Sep 9, 2016, a leak in Alabama caused an 11-day shutdown. The NYH RBOB crack spread vs Dated Brent rose $6/Bbl to a peak of $17.75/Bbl on Sep 14. By the time the line came back on line on Sep 21, the crack was under $13/Bbl with the transition to winter-spec material also weighing on prices.
A similar incident occurred on Oct 31, 2016 when a backhoe repairing the prior leak ruptured the line, causing an explosion that left one crew member dead. Line 1 was shut for another six days, with prices rising at a faster clip than during the September leak. The NYH RBOB/Brent crack jumped roughly $6/Bbl again to $20.44/Bbl the day of the explosion. However, just 10 days later the crack spread had cooled off to just $11/Bbl. Note that USAC gasoline inventories were relatively high to begin with in Sep 2016 (much like they are today), helping to alleviate supply tightness.